Davis Corporation borrowed $50,000 on January 1,2016.The loan is for a ten-year period and has an annual interest rate of 9%.At the end of each year,Davis will make a payment of $7,791,which includes both principal and interest.The amount of the payment for 2016 that is interest expense is $4,500.

Question

Quizplus · Accepted Answer

The total payment made at the end of the first year, which includes both principal and interest, is $7,791. If we subtract the principal payment from this amount, we get the interest expense for the first year:
$7,791 - $50,000/10 = $7,791 - $5,000 = $2,791
This is not equal to the given interest expense of $4,500. However, we know that the interest rate is 9%, which means that the interest expense for the first year should be:
$50,000 x 0.09 = $4,500
Therefore, the given statement is false because the amount of the payment for 2016 that is interest expense is actually $2,791, not $4,500.

Davis Corporation Borrowed $50,000 on January 1,2016